2/23/2006 @ 1:40PM

Merck's Januvia Has 'Huge' Commercial Potential For Diabetes

Morgan Stanley raised earnings forecasts on
Merck
and expects the pharmaceutical firm’s sales of Januvia, a new diabetes treatment, to come in higher than current expectations.

Recent comments by Dr. Daniel Drucker, a professor at the University of Toronto and leader in diabetes and endocrinology, suggested dipeptidyl peptidase agents such as those being developed by
Merck
and
Novartis
have potential as effective second-line treatments for type 2 diabetes, according to Morgan Stanley.

Merck announced on Feb. 14 the U.S. Food and Drug Administration accepted a new drug application fro Januvia with a decision expected in October.

Jami Rubin, a major pharmaceuticals analyst with Morgan Stanley, lifted 2007 and 2008 earnings-per-share estimates to $2.42 and $2.36, respectively, from $2.39 and $2.34.

“Our higher sales projections are driven by the earlier than expected filing, which suggests an earlier launch, and by higher market share assumptions now that Januvia appears to have leapfrogged Novartis’ Galvus in the race to be first to market,” wrote Rubin in a client note issued today.

The analyst said the new class of drugs is a promising substitute for sulfonylureas, an older group of drugs which help the body release more natural insulin but have potential side effects such as weight gain.

“The DPP-IV inhibitors represent a huge new commercial opportunity, in our opinion,” said Rubin. “Given the size of the sulfonylurea market (38 million annual prescriptions in the U.S.) and an assumed price of $4 to $5 per day, DPP-IV inhibitors could achieve sales of $3 billion in the U.S. alone if they could capture half of that market.”

In addition, Rubin said DPP-IV inhibitors could appeal to a broader group of primary care patients compared with Byetta, a potent diabetes drug marketed by
Amylin Pharmaceuticals
and
Eli Lilly
, “largely due to once daily oral dosing, benefits in reducing Hba1c, lack of weight gain, and the potential to improve beta cell function.”

“If Phase III clinical data hold up, we see the potential for these oral anti-diabetes drugs to replace older sulfonylureas at a significantly higher price point,” she added.

Rubin raised the price target on shares of “overweight”-rated Merck to $40 from $38. “We believe the market is significantly underestimating the potential of Merck’s new products, while overestimating the company’s ultimate Vioxx legal liability.”